Texas-Based Oil & Gas Royalty Fund – Mineral Rights in Producing Assets

Helping Great Companies Grow

Overview

Oil & gas fund is seeking $100 million of capital to purchase mineral rights (also called oil & gas royalties) in producing properties with development upside in some of the most productive plays in the U.S.

  • Launching ninth and largest fund – IX
    • objective: acquisition, management, and disposition of oil & gas royalties in Texas
    • active portfolio management – top tier land management team
    • proven track record – eight prior funds (over $39 million managed in committed capital) have generated double-digit annual returns (detailed information available upon request)
    • risk management – develop cash producing properties, alongside underdeveloped properties that offer opportunities for exits and capital gains
    • value creation – bundles attractively priced royalty interests from smaller landowners – not available to the broader market
    • proprietary software – identifies arbitrage opportunities amongst mineral owners
  • Veteran owned and operated firm with a proven, successful track record
  • Management team has extensive experience in the land and corporate development of oil & gas properties
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Opportunity

  • U.S. property laws are unique – allow private citizens to share the revenues generated from the extraction of natural resources
    • sub-surface mineral rights may be privately-owned
    • right to develop these mineral rights may be sold to oil & gas firms
    • mineral and royalty interests are considered “real property”- can be bought, sold or leased like other real estate
    • separate from the surface real estate – relatively more liquid than traditional surface real estate
    • counties typically charge property taxes to mineral owners based on the royalty payments for said interests
    • acreage value reflects geography, operator activity, hydrocarbon composition and the pace of development of mineral operations
    • value gains reflect the discovery of productive minerals, existing infrastructure, quality of operators and technology used to maximize economic efficiency and recovery of oil & gas
  • Energy companies lease mineral rights – creating a royalty for the mineral rights owners
    • energy companies typically pay mineral rights owners approximately 12.5% – 25% of net revenues generated by oil & gas wells on their acreage
  • Texas has some of the most productive oil & gas plays in the U.S.
    • over 600,000 individual mineral rights owners
    • over 2 million different producing royalty interests
    • mineral and royalty ownership laws in Texas is typically more favorable to mineral and royalty interest owners compared to other states
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Fracking versus Conventional Drilling

  • Hydraulic fracturing (fracking) has enabled the recovery of more oil & gas reserves compared to conventional drilling
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Royalty Owners versus Working Interests

  • Royalty owners
    • real property – can 1031 exchange in/out
    • not subject to drilling or completion costs
    • not responsible for liabilities
  • Working interests are responsible for
    • future costs of workovers and additional development
    •  liabilities
    • safety and environmental expenses
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Solution/Strategy

  • Acquire mineral rights in producing oil & gas assets with development upside in Texas – such as the Permian Basin (about 40%), Eagle Ford (about 30%) and other plays (about 30%) including the Haynesville and Barnett Shale
  • Active management strategy
    • top tier land management team
    • obtain new lease agreements and bonuses, as well as potentially increase royalty rates
    • curative title work – title defects may allow for extraction of more interest and/or executive power from mineral estate
  • Risk mitigation
    • portfolio diversification by basin (within Texas), commodity (crude oil, natural gas, and natural gas liquids), and operator
  • Multi-pronged approach
    • stable yield from cash flowing oil & gas royalties
    • upside potential from future development
    • capital gains on exit
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Value/Exit

  • Value creation – generate deal flow ahead of drill bit at below-market entry prices
    • proprietary software – identifies arbitrage opportunities amongst mineral owners
    • sources deal flow directly from landowners – not available to the broader market
    • purchase mineral rights from smaller sellers, often at a discount to prices from larger sellers
    • bundle fragmented royalty streams for sale to institutional investors
  • Significant upfront due diligence
    • proprietary software – evaluates opportunities
    • detailed database of operator activity trends
  • Exit strategies
    • continual re-evaluation of properties
    • divest non-core interests and declining assets to generate capital gains to reinvest and maximize returns
Helping Great Companies Grow
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Hi. We're not around right now. But you can send us an email and we'll get back to you, asap.

Thanks, Ken

Ken Margolis | Managing Partner Castle Placement, LLC
1460 Broadway Street, Rte 400
New York, New York 10036
(212) 418-1188 | C: (516) 712-7784
kmargolis@castleplacement.com

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